May 9, 2012 (PLANSPONSOR.com) – Households relying on Social Security benefits to cover health care costs should expect medical bills to consume 61% of their Social Security payments by 2027.
According to Fidelity Investments, a 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses throughout retirement. This represents a 4% increase from last year, when the estimate was $230,000.
Fidelity has calculated an annual estimate of medical expenses for retirees for more than a decade. For many Americans, health care is likely to be among their largest expenses in retirement. The estimate, which is calculated by Fidelity’s Benefits Consulting business, does not include any costs associated with nursing home care and applies to retirees with traditional Medicare insurance coverage.
The estimate has increased an average of 6% annually since Fidelity’s initial calculation of $160,000 in 2002, with the exception of 2011 when the estimate declined $20,000. That one and only decrease in the history of the estimate was due to a one-time adjustment driven by Medicare changes that reduced out-of-pocket expenses for prescription drugs for many seniors. This year, health care expenses are rising once again.
“Today’s workers must understand that the cost of health care is expected to continue rising significantly in future years,” said Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business.